Bank Stocks Fall on Macro and Private Credit Concerns

Shares of US banks traded down by low-to-mid single digits on Feb. 23, mostly due to macro concerns stemming from tariff uncertainty, possible credit losses from an increase in the unemployment rate driven by artificial intelligence disruption, and private credit-related exposure.

Why it matters: Recent tariff announcements have increased uncertainty around the US economic outlook. In addition, the market is concerned that AI disruption could lead to higher layoffs, driving consumer-related credit losses higher. However, our 2026 base case does not assume a recession or a material increase in the unemployment rate. We also view private credit exposure as manageable for most US banks.

• Median exposure to non-depository financial institutions across banks under our coverage is about 11% of total loans, and asset classes within the NDFI category are diversified, and banks typically maintain internal underwriting limits by industry. We estimate that AI data center-related lending falls within business credit, which represents about 20% of total NDFI exposure across the US banking system.
• The losses from NDFI lending by US banks have been manageable so far. Subscription line lending and secured real estate lending are the two largest components, both generally carrying relatively low risk profiles.

The bottom line: We will maintain our fair value estimates for the US banks under our coverage, and we view the US banking sector as roughly fairly valued following the Feb. 23 selloff. On average, the sector trades at about 1.0 times our fair value estimates.

• We also think the US banking sector is well capitalized to absorb future credit losses, with most banks maintaining buffers of 150 to 200 basis points or more above their regulatory minimums.